Magazine

A Wireless Wiz Expands Its Horizons

September 01, 2002

Just a couple of years back, SK Telecom Co. seemed content to remain Korea's leading wireless player and leave the regional and global vision to others. Sure, SK controlled more than half of Korea's mobile market. And it was aggressively expanding into data services, with millions of users tapping into its network to zap messages to friends and download ringtones. But it had no real operations outside Korea and didn't appear to have much ambition to build any.

These days, SK is no longer a homebody. Last year, the company signed a consulting contract with China's second-largest mobile player, China Unicom Ltd., to help it set up voice and data services. And in July, SK agreed to form a joint venture with Unicom to provide wireless Internet services, though the terms haven't been settled yet. "The venture will establish a firm foothold for us to tap the huge China market," says SK Vice-President Cho Sung Hae.

SK is casting its net into deeper waters as well. It's in talks with other Asian carriers to establish joint ventures around the region. And it is hoping to sell its data technology--using a transmission standard called CDMA--in Asia, Australia, and the U.S. Although these operations are small today, "our dream is to form a CDMA belt in the Pacific Rim," says SK Chairman Son Kil Seung.

SK's growing confidence stems from its dominance on its home turf. Originally a paging company, it was spun off from former monopoly phone carrier Korea Telecom Corp. in 1984. In 1994, it was bought by Korean conglomerate SK Group, which smelled opportunity and expanded aggressively into mobile telephony. Today, SK Telecom has 16.5 million subscribers--53% of Korea's total. Better yet, 6.7 million of them use an SK service that transmits data at 144 kilobits per second, several times faster than the speeds available from most carriers worldwide. "We have become a pacesetter," says Kim Shin Bae, SK's strategic-planning chief.

And it's beating the pants off the local competition. SK's closest rival, KT Freetel Ltd., has 33% of Korea's 31 million mobile subscribers, while LG TeleCom is a distant third, with 14%. SK's sales are expected to grow by 10% this year, to $7.4 billion, and the company says profits will surge by nearly 50%, to $1.5 billion. "It appears almost impossible for other Korean players to break SK's leadership in the wireless game," says Chang Sung Min, a telecom analyst at Samsung Securities Co. in Seoul.

Now, SK is continuing to invest to stay on top. The company is spending $2.5 billion this year and next to upgrade its data network to support so-called third-generation, or 3G, service. The system will allow SK to shuttle data at up to 2.4 megabits per second--as fast as most fixed-line broadband connections. The 3G service is already available in 26 cities, though only a few hundred subscribers have signed up because handsets aren't yet widely available. As phones arrive in stores in coming weeks, the company is predicting rapid growth. It expects to have 300,000 3G customers by yearend.

SK's challenge now is to make its investment pay off. One potential moneymaker: an agreement with Visa International to market phones that double as credit cards. SK is also rolling out snazzy new wireless Web services that will allow users to call up movie previews and sports highlights on their phones. Other services let drivers view traffic cams to find the best route to any destination--and receive voice prompts to direct them at intersections.

So far, SK's Korean strategy is on schedule: Data traffic now represents 8% of sales and should top 15% next year, the company says. Still, the new services cost up to $1.30 per minute, which may be a tough sell for much of the population. "The key question is whether SK can attract people in their 30s and 40s--and not just teenagers and twentysomethings--to the mobile Internet," says Sean Lee, a telecom analyst with HSBC Securities Inc.

SK is also looking overseas to recoup some of its investment. The China Unicom deal is a start. And phone companies around the world could benefit from SK's unparalleled expertise in providing data service to Koreans, arguably the planet's most tech-savvy customers. It may have taken a while for the company to develop a global vision, but SK has no plans to look back. By Moon Ihlwan in Seoul